Enterprise software giant SAP has never had much success in selling its flagship software, R/3 and more recently mySAP.com, to small- and medium-sized enterprises. Not so surprising, given its typical customer has at least 10,000 users. So while the company's March 2002 purchase of TopManage Financial Systems, an Israel-based developer of business applications, demonstrates its renewed commitment to becoming a software provider to smaller companies, how fruitful its efforts will be is open to question.

	Shai Agassi, SAP

SAP's earlier efforts to target small- and medium-sized enterprises have, to date, been unsuccessful compared to its track record of selling to large organisations. When the company launched the R/3 version of its enterprise applications suite in 1992, SAP was targeting R/3 for the smaller divisions and subsidiaries of companies running its mainframe-based version, R/2. R/3, said SAP executives, would be marketed to midsize companies, with revenues of "$100 million and below", that were too small for R/2. Instead, R/3 became the best-selling enterprise applications for the world's largest organisations. Subsequent attempts to push into smaller companies have centred on marketing scaled-down, pre-configured and hosted versions of the R/3 suite to small- and medium-sized businesses (SMBs) – but with limited enthusiasm or success.

Today, SAP defines the SMB market as companies with revenues of less than £150 million per annum. But at present, it derives around 8% of its licence revenues from SMBs. According to SAP's European head, Leo Apotheker, the company's new strategy will boost this figure to between 15% and 20% in three to five years.

The new strategy, centred on the TopManage acquisition, involves the formation of a dedicated business unit, BU SMB, for the SMB market. For small businesses with between five and 100 users, SAP will sell the TopManage product through channel partners. For larger organisations in the SMB space, it hopes to sell mySAP.com.

One question that emerges from the TopManage deal is why cash-rich SAP chose to buy a low-end product from a small, little-known Israeli company.

"It's a little bit of a surprise that they'd choose TopManage," says Simon Pollard, vice president of European research at IT market research company AMR Research. He says that SAP could easily have acquired one of the "bigger mid-market companies" such as Navision or Intentia.

"SAP should have purchased QAD or Intentia, by which it would have picked up thousands of new customers that would have been good candidates for SAP's Customer Relationship Management, Advanced Planning and Optimization, and Business Warehouse, and the rest of the SAP suite," concurs Pollard's colleague Bruce Richardson, senior vice president of research. "Of course," Richardson adds, "[these companies] wouldn't have been for sale at the same $5 million to $10 million price as TopManage was."

That SAP was offered TopManage at a preferential price can hardly be in doubt. TopManage was founded by Shai Agassi and his father Reovan – the team behind portal company TopTier, which SAP bought in March 2001. Shai Agassi has led SAP's portal division since TopTier's acquisition.

SAP executives are quick to emphasise TopManage's strengths. Tim Osman, SAP's manager of mid-market solutions in the UK, says that the TopManage product is an "international product" and "easily configurable in terms of localisation". It is currently available in English, Hebrew and Spanish versions, though German and French versions will surely follow soon. TopManage can be easily added to and worked on by SAP, and as a company with significant development resources and a strong brand, "you don't necessarily need to buy an established product", says Osman. The company has more than 800 customers, "most of them outside of Israel", he says.

In terms of function, he says, TopManage offers small companies many advantages over competing products. The product is "lean but also very functionally rich", with capabilities such as simple customer relationship management, sales pipeline tracking and sales force automation. The combination of all these capabilities is typically available only in products that are "three or four times as large and expensive", he says. It can go live in as little as three days, he claims, and will be competitively priced for the low end of the SMB market. SAP, according to Osman, is "looking to undercut [the cost of running other software] by at least 20% in every market we play in".

Pollard argues that organisations of all sizes are increasingly moving away from large, monolithic enterprise systems, in favour of installing and integrating more granular systems based on software components that can dynamically exchange data with each other. Typically, they will purchase these components from a wide range of different vendors, integrating them with components developed in-house. "Therefore, the idea that a large corporation will solve its problems by using mySAP.com for all of its large subsidiaries and TopManage for all of its small ones is grossly simplistic."

As SAP celebrates its 30th birthday in April 2002, there can be little doubt of the influence the world's third largest software company holds, both in the IT industry as a whole, and among the world's largest buyers of corporate technology. But whether SAP can convince companies that might more readily consider a product from a mid-market enterprise software specialist, such as Sage, Intentia, IBS, Navision or increasingly, Microsoft's Great Plains division, that it can offer a product that fits their needs more closely at a price they can afford is questionable.

"I think if it takes off, it'll take off rapidly," says Osman. But while SAP claims it is in the SMB market for the long term, its commitment to the space could still waver if it is not able to achieve significant, immediate revenue growth.